In today’s briefing:
- Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side
- Tencent 3Q: Shows Signs of Improvement
- Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time
- TME: Online Music Biz Resumes Growth but Social Entertainment Further Drops
- Indonesian Banks 3Q22 Screener; Negara Stands Out as the Value Pick
- Buy Polygon For Big-Brand Crypto Scaling
- Nesco: BEC Business Is Back to Pre-COVID Level
- Kolte Patil: Temporary Blip in Q2FY23 Earnings; On Track for a Strong FY23
- Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated
- Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox
Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side
- Sea Ltd (SE US) shares were up 36% yesterday following a relatively small top-line beat of 4.8% and a narrower-than-expected operating loss of $495.6m (consensus: $581.9) through rigorous cost-cutting.
- The share price move sets-up nicely to make gains on the short-side, as e-commerce and fintech remain unprofitable after cutting-down necessary expenses such as logistics and senior management cash compensation.
- We estimate the fair value of Sea Ltd at around $10.0bn EV compared to the current EV of $33.1bn, which implies a downside of 66% to Sea’s post-3Q22 price.
Tencent 3Q: Shows Signs of Improvement
- Tencent (700 HK) reported 3Q2022 results yesterday. Revenue decreased 1.6% YoY to RMB140.1bn (vs consensus RMB140.0bn) while adjusted OP declined 0.2% YoY to RMB28.4bn.
- Revenue from both Internet VAS and Online Advertising declined YoY during the quarter. Social networks revenue declined YoY for the first time by 1.9%.
- Tencent also announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends similar to the special dividend of its stake in JD.com.
Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time
- Revenue decreased by 1.6% YoY in 3Q22, less than a decrease of 3.1% YoY in 2Q22.
- A governmental media gave positive comment to game industry for first time.
- We believe the stock has an upside of 52% for year end 2023.
TME: Online Music Biz Resumes Growth but Social Entertainment Further Drops
- Tencent Music (TME US) reported 3Q2022 results yesterday. Revenue declined 5.6% YoY to RMB7.4bn (vs consensus RMB7.0bn) while adjusted OP for the quarter increased 14.0% YoY to RMB765m.
- Revenue from social entertainment services decreased 20% YoY which was partially helped offset by 18.8% YoY increase in online music services revenues.
- GPM and OPM improved due to huge spending cuts on content, revenue sharing and S&M and we are yet to see if TME can sustain this without compromising user growth.
Indonesian Banks 3Q22 Screener; Negara Stands Out as the Value Pick
- In this 3Q22 Indonesian banks screener, we rate Bank Negara as our key value pick with its very attractive valuations including PEG ratio and its improving cost of risk trends
- We continue to also favour Bank Mandiri, but, in the wake of the share price re-rating, it is our secondary value pick to Negara
- Bank Rakyat has delivered improved returns in 3Q22, and shows signs of “turn around” potential; we look for management to improve credit quality and especially the Special Mention Loans Ratio
Buy Polygon For Big-Brand Crypto Scaling
- Polygon added to Disney Accelerator program. Fashion and payments companies add to the recent partnerships.
- Polygon also added to the recently partnerships with Instagram NFTs.
- In a recent article, I advised buying Disney for eventual growth in the metaverse. Polygon (MATIC-USD) is a crypto project that has been making waves with a series of big-name corporate partnerships, including Disney.
Nesco: BEC Business Is Back to Pre-COVID Level
- Bombay Exhibition Center (BEC) business has recovered sooner than expected and is now back to pre-COVID level with INR 50cr+ revenues in Q2FY23.
- Demand for exhibitions could grow structurally post-COVID, suggesting that the BEC business is now likely to be even stronger than pre-COVID.
- Office Leasing (IT Parks) business showed QoQ growth suggesting that the occupancy level showed marginal improvement.
Kolte Patil: Temporary Blip in Q2FY23 Earnings; On Track for a Strong FY23
- Q2FY23 results were subdued due to delay in launch of a few new projects.
- Lower proportion of sales from Mumbai led to decline in realization by 9% QoQ, however, this has quarterly variation and was also impacted by delay in new project launches.
- The current quarter sales seem to be a temporary blip as most of the new projects are on track to launch in Q3FY23.
Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated
- In H1FY23, Kaken Pharmaceutical (4521 JP) reported 2% revenue decline to ¥36.8 billion, as the company’s key branded drugs, including Clenafin, Artz, and Seprafilm are recording decelerating sales.
- Newer drugs, including Ecclock, Regroth, and Hernicore reported revenue growth of 47.8%, 4.1%, and 4.1%, y/y, respectively. However, these three drugs contributed just 4% of total revenue.
- Lower revenue and higher operating expenses (+2% y/y) pulled down operating profit by 9% y/y to ¥8.2 billion. Operating margin decreased 170bps to 22.3%.
Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox
- This model looks for slowing growth, margin declines, sales and/or earnings disappointments, troubling working capital trends, poor estimate trends or lowered guidance, among other characteristics.
- The key judgement is whether a slowdown is temporary or the beginning of a trend. These shorts tend to have high valuations and betas. Multiple compression accelerates the stock’s decline.
- Today we are flagging Plug Power, Nvidia, Palantir, and Roblox
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